I feel like this needs a "when to give up" section. Like at some point it's obvious right. When is that point. Should you just destroy your entire life and never give up no matter how long since it's been since you've had steady growth? I've seen startups struggle for years with average growth or really slow linear growth where real profitability was years away. Do they just continue? Is that the advice? What about their employees who are being paid less than market value?
> an even bigger problem is that once you have a startup you have to hurry to come up with an idea, and because it’s already an official company the idea can’t be too crazy. You end up with plausible sounding but derivative ideas. This is the danger of pivots.
A great point, that I haven't seen in too many places. I sometimes feel like we're seeing too many people who "want to have a startup" for the supposed fame and fortune, and not enough who are truly passionate about an idea. Believing in an idea will get you through, not dreams of gold coins.
Sam, I noticed you didn't mention watching cash burn or unit economics. Is that a later section you might add? Too many founders don't realize the importance of that until it's too late (speaking from personal experience)
As a counterpoint, the founders of Thumbtack started a startup before they had an idea, picked a very "derivative idea" and still did (and are doing) pretty well. If I had to quantify the motivation of the early team, it was much more about the company being successful than everybody being super passionate about the idea. As long as you can out-execute your competitors and people want your product, it doesn't really matter what your motivation is.
Its not even just passion that should drive a startup/business. Success it not just a matter of gaining X amount of emails and signups on your site. Its also not all about trying to think of the next thing to keep people on.
I think to really succeed at a startup is to make a product that is needed and that can be sustained throughout the years. To do so, you have to think long term.
Its ok to add the "new hotness" to your business as well, but it shouldn't be what the core business is about.
Facebook's success was not because they added photos, IM, pokes, likes, it was because there was a solid platform to find people. Sure those other features helped promote and enhance the product, but without the focus on the #1 goal (making it easier to connect the world) that platform could have easily gone by the wayside.
Ha, it's amazing to see a Leo Strauss reference in a HN thread! I majored in Political Theory at Michigan State, and the department was full of Straussians. Worlds colliding.
That's great. This has been my life, finding the easy wins, and when they stop working, moving on to the next. This is one of the points that characterize me as soft.
> On the other hand, starting a startup is not in fact very risky to your career—if you’re really good at technology, there will be job opportunities if you fail. Most people are very bad at evaluating risk.
It's true that career risk is low, but opportunity cost could be high. If you're well into your career, taking a few years off to work at a startup that might fail could really be a million dollar tradeoff.
So you really gotta believe in your startup.
(Note: I left my comfortable high paying job earlier this year to start a startup)
That is the calculation I used over the course of a few months to switch from being a teacher to going all-in on my office design website.
At the time I was pretty burnt out from teaching, ended up moving to a new city and was doing a few temp jobs to make some extra cash. The risk was low enough at that point that the website was almost a no brainer. I'm pretty confident that had I been in a good spot career-wise at the time, I would likely have either never kept my side project going.
I wish there was a similar level and quality of resources for what I think are called lifestyle businesses. By that, I mean product-based businesses with at most a few million in revenue, a 5ish person team, a solid sustainable market position, and no desire to revolutionize any unicorns.
I know a lot of people attempting this and they mostly seem to be flying under the radar, or at least have nowhere near the cachet of a startup. They are often bootstrapped, frequently for lack of other options.
For those of us who don't want to be in the pressure cooker or are turned off by the hype machine, these businesses are a viable alternative route toward independence and possibly achieving a significant impact. The fact that they have become as attainable as they are is I think also something quite remarkable.
The Basecamp (née 37Signals) folks have been beating this drum for quite some time. DHH posted "Reconsider" to their blog today, actually; it's an entertaining read, if nothing else: https://signalvnoise.com/posts/3972-reconsider
Here in Seattle, there's a great community of small software businesses with meaningful profits and impact. We have ties to the broader Seattle startup and technology community, without being a proper subset.
I don't see it as an either-or proposition. Right funding for the right business, as it were.
There's plenty of room for both models. Lifestyle businesses are awesome. 100% great. But we wouldn't have society-level upgrades like Uber, Twitter or Apple without venture capital. They just don't work any other way.
I disagree strongly. We have the web because Tim Berners-Lee didn't raise an angel round, so he didn't ask 'how do I monetize' and built an amazing open system. Before him we had CompuServe and other VC backed trash.
VC businesses like Twitter and Uber create centralized points of stagnation that seem great at first, but can't innovate the way open systems can. If Twitter was open we wouldn't be wondering if they'll improve their product or who will be CEO, because there'd be a dozen people innovating on it. Instead, because the network is owned by one group of people, that basically doesn't happen.
We still get that sort of amazing, eco-system creating innovation when a rare innovator declines VC (wikipedia, bitcoin). But when a VC steps in, the only innovations that flourish are those that benefit the capitalist.
Venture capital is, ironically, the enemy of innovation. It doesn't support it; it captures it and restrains it, tying it down with the bonds of capital.
What I find funny is that if you make an analogy to music you find exactly where these platitudes lead to. "Great team" like One Direction or Britney Spears. "Make something that people want," such as Hit Me Baby One More Time.
Innovation is more like this: "The Velvet Underground's first album only sold a few thousand copies, but everyone who bought one formed a band." [Brian Eno]
When I see VC's like Peter Thiel who openly (and correctly) complain about the lack of innovation, I have to scratch my head and think, "Well, then, get out of the way."
> We have the web because Tim Berners-Lee didn't raise an angel round
Perhaps, but how successful would TBL's creation be without the Kleiner-Perkins investment in Netscape. The paid web browser probably wouldn't have taken off and the VC funding allowed Netscape to invest in building a quality browser while not charging end users to download.
VC has it's place and we shouldn't write it off entirely. But we should also realize that there are other ways for important changes to develop and VC isn't the panacea as it's often presented as here.
> Joy's law is the principle that "no matter who you are, most of the smartest people work for someone else,” attributed to Sun Microsystems co-founder Bill Joy.
> Joy was prompted to state this observation through his dislike of Bill Gates’ view of “Microsoft as an IQ monopolist.” He argued that, instead, “It’s better to create an ecology that gets all the world’s smartest people toiling in your garden for your goals. If you rely solely on your own employees, you’ll never solve all your customers’ needs.”
I disagree with the broad characterization of VC as an enemy of innovation. There are plenty of VC-backed companies that don't innovate. There are also plenty of non VC-backed companies that don't innovate either.
To name 4: Google, Docker, Tesla, Apple. I'm happy that they were able to raise enough VC that they've innovated and created stuff that I happily use. (Well, I don't own a Tesla. But I've driven one.)
It's an interesting point, but I'm wondering how to unpack it.
"If Twitter was open... a dozen people innovating on it..."
Though not 100% independent of their funding model (loss-aversion bias might lead us to conclude that big companies take less risk), presumably Twitter has at least a dozen people trying to innovate on it?
They may not be doing what [parts of] the community wants, but that's not quite the same thing as not innovating.
Things like GPS are the result of hundreds of billions of dollars of government spending, much of it going to the military-industrial complex. So yeah.
AFAIK, Apple had a single major investment for it's incorporation. And it was a healthy investment, as Apple was making real money really fast.
Twitter is flowing in the sea of red and as far as I know never had a dime of profit. Who gives money to twitter by this point? Twitter has a lot of users, but it does not monetise the platform well. Also IMHO, Twitter has waaaay too many employees and I imagine that it's internal processes are very inefficient.
Uber is great example of unicorn startup. Though we'll see how it will turn out.
Step away from the tinfoil hat. "Reconsider" is still atop the best list.
Personally I found this article more interesting than "Reconsider". I mean c'mon, it's trivially true that the humbler road doesn't get the press but is more spiritually satisfying &c &c. Whereas this article brings together valuable knowledge from different domains.
Thanks for reposting this, I didn't see it the first time around.
Many of the pro-startup stuff I see, in particular this Altman piece, make me subtly uncomfortable, and I couldn't quite put my finger on why. Maybe it's because, while I live in the Valley, I'm a Seattle native. Maybe it's because Sam's younger than I am. Maybe it's because I like the suburbs better than San Francisco proper.
Maybe it's because I'm not an Ideas guy; this isn't targeted at me because I have no interest in starting a company and dedicating every second of my waking life to it.
That's why I was hesitant to comment at all. "Of course you're uncomfortable with it," the reply to my comment would read, "you non-disruptive loser" it would end.
For those who want a unicorn valuation, I'm sure Sam's piece is great. Or maybe it's not, I don't know.
But what I do know is he kept mentioning how competition never kills startups. It's failure to execute. Why balance burnout and cashflow and hiring and funding in some kind of race to become a unicorn if competitors won't actually kill you?
Why not grow at a reasonable pace, running a reasonable business, that makes reasonable money?
I think the advice re. competitors tends to be about "how much should you worry about what a competitor is doing _right now_" - and the answer to that is pretty much always "not a whole lot." You can have two businesses doing similar things but taking radically different approaches to execution and both succeeding in their own way.
But on the macro scale there are always windows of opening and closing opportunity on what makes for a viable business before (new technology takes over/bigger companies start paying attention/governments try to regulate you out of existence), and it is that more general climate of whether it's possible to execute at all that pressures the potential unicorns into a do-or-die mode. Monopolistic competition like e.g. Uber vs. Lyft is an exceptional case for technology; the expectation is that if you succeed at all you will probably be in complete control until the technology ecosystem itself shifts.
There is a second half to this, of course, which is that the type of people who found a fast-moving VC-backed startup are so deeply enmeshed in their plans for the company that they will put themselves into an unsustainable overdrive and expect everyone around them to do the same. Their enthusiasm can be entirely real and still be basically toxic and lacking in conservative sensibility. There are a lot of commonalities among founder personalities, IME.
Angels? Really? You’ve plucked your self-serving moniker from the parables of a religion that specifically and explicitly had its head honcho throw the money men out of the temple and proclaim a rich man less likely to make it into heaven than a camel through a needle’s eye. Okay then!
How can I find jobs for small software business like that (especially in Seattle!)? I want to work in a smaller environment that's not necessarily trying to be a "unicorn", but those seem to be the only jobs posted here on HN for "Who's hiring?". On other job boards, I mostly just see larger corporations hiring worker drones. I just want to write good software that solves interesting problems and make enough money to get by!
It's really up to you to go out and find them. I suggest looking for local meetups and talking to engineers who are working in those small businesses. Get to know the people in your community running these small businesses.
Most of our hires were introduced through people I know. In a small business this is often the only logical way to hire because you already have some level of trust with the referrer and thus they've acted as the first gateway for a candidate to get through (and they usually can vouch for the candidate's work).
Also, many small businesses are concerned largely with staying alive and making a profit, so that may mean they will be focused on "non-interesting" problems of making the business operate well. Factor this into your decision as to who you want to work for as well.
I guess that's the issue- where I'm living right now, there is absolutely no "tech scene". There are no local meetups that don't require me driving 1.5+ hours one way to get to, which I can't manage to do on a regular basis. I'd love to move somewhere where there's more people who are like-minded, but I can't just up and move without a job waiting for me.
The general consensus I'm hearing is that the way you get hired at a smaller company is just through networking, but if there's no network near me to speak of am I just simply out of luck?
And yes, I'm aware that I will have to work on some "non-interesting" problems, but I'm okay with that as long as I feel like my work is being valued by my coworkers and that I'm not just another drone.
I'll second this, it really is a "scene." When hiring or looking for contract work, people reach out to their network first and it almost always produces someone. Reaching out to the open market is seen as a last resort and rarely happens.
Also, chatting with random people at coworking spaces could be fruitful.
If you think that at a lifestyle business you can just philosophize about 'architecture', write 3 prototypes and hone every last function for aesthetics, you're sadly mistaken. When you're small everyone has to do everything, you need to ship so bills can be paid, and customers are always nr 1, not the software. I like 'small' too, but it's not like working at a lifestyle business is like having tenure. Owning one that has plenty of cash at hand might be, but working for one isn't.
When I worked for other people I had great success by cold-calling firms that interested me and that I felt could use my skills. They didn't always have job listings but they liked my genuine interest in their products.
If you're in Seattle, have you looked at software engineering positions at the UW? You can find plenty of interesting problems to work on, with world-class peers in the faculty and students.
I was surprised that article didn't trigger a bigger response on HN. It is a little over the top, but it leaves a lot to think about. The Unicorn, disruption PR wheel has drowned out the virtues and benefits of other forms of entrepreneurship.
For me personally I tend to ignore most of what DHH writes.
He has an unfortunate tendency to see the way that he was successful as the only way to be successful, and seems to lack the ability to benefits in other ways of doing things. We used to see this in PG's writings too: back before he started YC he appeared to be utterly convinced that it was Lisp that made his company successful. After he started YC and he saw a lot more his writing became a lot stronger IMO.
Regarding DHH, I'll just point at [1], with the comment that Facebook made $891 profit last quarter. It's also currently valued at ~$300B.
To be fair that blog post was written in 2010 when Facebook was still a private company and had nowhere near the level of advertising, reach, etc. that it has today. In particular they had barely scratched the surface of mobile and were only making money off Farmville and other ephemeral apps.
They were still dumb, they just got lucky. When you have enough money to throw shit and see what sticks, you don't need to be smart and pick winners. That's the whole crux of why people don't respect VC.
They were desperately buying anything they could on the secondary markets. That isn't luck, it's seeing an opportunity.
It's like Pinterest 2 or 3 years ago (say around the time of the 27M A16Z B round). Putting as much money into that as you could isn't being lucky, it's seeing an opportunity. Their 2014 and 2015 rounds are basically just ways to print money.
That's the whole crux of why people don't respect VC.
Um. Some people don't respect some VCs. I don't agree with everything Marc Andreessen says, but I'd be pretty silly if I didn't respect his opinion on technology.
To my mind, this mainly reinforces that ample success does not lend one's opinions any credence. Fortunately, there aren't many people relying on DHH for market analysis. It's kind of like how no one really needs to hear my opinions on politics just because I'm a championship level drinker (but I'll give them anyway).
I think what this essay overlooked is that the choice between a "low-risk but small business path" and a "high-risk unicorn path" is not always merely about business-choices and cornering markets simply by using large sums of money. A different "high-risk unicorn path" is going through hard scientific research, which often requires external money to get anything from the ground. And it is this last type of business that, imho, deserves our respect most. But otherwise I agree with that article.
I think "unicorn" is strictly reserved for the Ubers and the AirBNBs of the world. Anyone who calls the company that gets fusion energy working a "unicorn" will probably be laughed out of the room.
It seems like Aileen Lee was one of the first people to popularize unicorns. in his article around 2013[0] he defines them as
> We found 39 companies belong to what we call the “Unicorn Club” (by our definition, U.S.-based software companies started since 2003 and valued at over $1 billion by public or private market investors). That’s about .07 percent of venture-backed consumer and enterprise software startups.
That being said, the term is now almost a pejorative moniker for overpriced vaporware or at least "proof of the bubble".
or something. Still though, a fusion company would be the rare breakthrough on a big idea that would warrant such a moniker. Unicorns missed the ark during the great flood, so at IPO time we'll see if tgey go extinct or evolve into narwhals.
> I wanted a life beyond work. Hobbies, family, and intellectual stimulation and pursuits beyond Hacker News, what the next-next-next JavaScript framework looks like, and how we can optimize our signup funnel.
I am long time thinking and saying, that modern startups have rather poisonous culture around them. It's very refreshing to read who thinks (and writes) about it.
Reading the advice in the handbook, I don't think it's all that different from what you'd need to start a lifestyle business. You still need to start with a business niche that is underserved where you can make a few customers very happy. You still need to focus on improving your product (or service) to the point where people will give you business via referrals - pounding the pavement for every single sale isn't a very desirable lifestyle. You still need to listen carefully to everything your users say, and to focus tightly and improve the product.
The difference, I think, is that a lifestyle business is a startup where you take your foot off the gas once your income meets your personal needs. It doesn't need to be a monopoly - in fact, it's better if it isn't, because if it is some other company will likely monopolize it. And you don't need to deal with the fundraising and hiring parts of the handbook, since you never get that big. Everything else seems to apply, though.
The devil's in the details. The handbook emphasizes Growth Growth Growth. So when your small focused obsessively cohesive product saturates its small niche and your growth is suddenly not-so-exponential, if you're a startup you start to Expand Expand Expand your product, new use cases, new functionalities, until you've reinvented email again.
If you're less growth focused, have your pricing nailed down, and are well positioned in your niche - then you should have enough new users from simple population turnover and you don't need that graph to keep angling so sharply upward to avoid ulcers.
That's my business. 2 partners (me: President and Founder, partner: CEO who I hired), 4 employees, and 2-3 at-will contractors for sporadic work. Revenue barely $1MM but growing, probably to $4-5MM in 3 years. Really love what I do and happy to be out of the BS VC silicon valley groupthink crap.
i run one like that too (a little further along) but i'll never mention the name here. there's no point, and it's risky. the other guy probably thinks the same. our businesses survive on sales and operations, not internet name-dropping.
i know you're curious so instead of teasing i'll just say: all of these kinds businesses are basically the same: think of something people or businesses pay money for, then do that. generally the business morphs as you get better / identify new opportunities. and you can grow it very large given enough time.
>* happy to be out of the BS VC silicon valley groupthink crap.*
If you have a 6 man company with titles like "President and Founder" and "CEO", you're buying into the SV groupthink a little.
Outside of SV, in the world of small/medium business (for which I've consulted), I don't think I've ever heard the title "CEO". Meanwhile, I've gone to tech conferences and have seen sole-proprietors refer to themselves as the CEO.
We have to be named something. I am the Founder of the company. That is a no brainer. I am also the President, as I set the strategy for the company (this is traditionally what the President does).
I do not make 95% of executive leadership decisions. The CEO does. Which again, is the definition of the term.
So no, I am not buying into the SV groupthink. Just because other startups use VP/SVP/"manager" doesn't make it non-SV. They're just... correct terms.
By that, I mean product-based businesses with at most a few million in revenue, a 5ish person team, a solid sustainable market position, and no desire to revolutionize any unicorns.
I believe this used to just be called "a small business". Not a terribly new idea, but being rediscovered perhaps by tech people?
A small business is fundamentally different from lifestyle tech business or a bootstrap. There could be hundreds and thousands of small businesses, say in a certain FMCG market in different local ares. A tech market with hundreds or thousands product businesses catering to a same target audience, probably, doesn't exist at all. Product companies tend to either grow or whither. Centralization is the norm.
Building a lifestyle business mostly rules out services as most desired lifestyle business model is some sort of passive income scheme. Content oriented monetization models are being slowly, but surely killed by ad blockers. An innovative product tailored to the needs of a small, well defined audience seems to be a best bet for a lifestyle business and that's very different from a classical SME.
I was reacting to the definition of "lifestyle business" not the label.
I don't think passive income is needed at all, I think "lifestyle business" is a useful definition for making tradeoffs in your business decisions in favor of your lifestyle.
e.g. setting up a consulting business in a small coastal town because you like to surf every morning, even though it costs you potential business. To my mind, that's certainly a "lifestyle business".
Doing this with a product business is harder but not impossible.
> I was reacting to the definition of "lifestyle business" not the label.
I don't know about you, but personally I get annoyed when people create a false dichotomy between a startup and a "lifestyle business". Not everyone who declines to play the VC game is a "lifestyle business". It should also not be a dirty word, which is the way it comes across to me sometimes.
Lifestyle business is a dirty word somewhere? "Lifestyle" business is a significantly more rational choice in comparison with VC backed startup if one considers their personal happiness and psychological wellbeing as an important metric.
> There could be hundreds and thousands of small businesses, say in a certain FMCG market in different local ares. A tech market with hundreds or thousands product businesses catering to a same target audience, probably, doesn't exist at all. Product companies tend to either grow or whither. Centralization is the norm.
Each local area is a separate market. Those types of businesses have limited geographical range, and a given range can only support a handful in a specific segment. For a technology business, the market is usually not limited by geography. Fundamentally, it is the same principal: a given market can only support a limited number of players.
Now, the size of the market may preclude traditional small business growth models. It depends on how tied to locality a particular business idea is. I could see, for instance, something like Homejoy working on the scale of a single metro area. In fact, having dozens of metro-area-sized Homejoys might actually work better than a single, national incarnation.
Because they benefit from YC's value prop, it's in Sama's and PG's interest to beat the Big Startup, Fast Growth, VC train, Silicon Valley drum. It's not disingenuous, it's literally what they believe and are committed to. But it's not the only way to be happy as a technologist. I'm not even convinced it's the best way to be happy as a technologist. YC put those materials out 1) as a branding and marketing effort and 2) to be helpful (part of their brand). In order for us to get quality resources like these for doing something small instead of big, we need folks who have a sustained interest and experience in beating that drum as well. Maybe we need a "Slow Tech" movement akin to the Slow Food movement.
Unlike the DHH rant linked above, I'm not condemning the Big Startup / Growth / VC approach. At a societal level, it has managed to spin up many game-changing companies very quickly. I think it's a movement that will go down in the history books for creating a lot of rapid progress in the first half of the 21st century.
But I'm also not convinced that it's the best way to be happy as a technologist. The system produces two things - incredible wealth and power for the few winners and a large amount of (a certain kind of) technological innovation. And it produces a lot of bodies, empty hype, churn and overpriced housing in the process. You can enjoy the innovation without joining up, and if you do join up then statistically speaking you're way more likely to be a body than a winner. I marvel at this machine but I'm aware that my happiness (or that of my loved ones) is not something it's likely to produce.
To his credit, Sama's post hints at this when he says that starting a startup actually "sucks." We should listen to him.
And I would be a card-carrying member of the "slow tech" movement, where do I sign?
I started my business 8 years ago and might be able to hire an employee soon and have been considering writing a post called "How I Hired My First Employee In Only 8 Years".
The goal would be to balance out some of the other posts here about getting 10000 users in a week or "bringing in $500k of revenue in 3 months.
Even I kinda feel like this, they make effort to make their name out in the market, but that doesn't mean that their advice is BS, some parts of them obviously will be a little bit too far fetched because they want to serve their purpose, but it is amazing to have free startup advice like the stanford lecture that YC took. Truly amazing content.
I really hate this term. It makes it seem like anything that's not a high growth unicorn startup is somehow a failure. It's like a way to give it a label and somehow look down on it.
(don't mean to aim this at you - just a general remark)
I generally use the term "Bootstrapped" as a shorthand for product/SAAS business started with limited capital and focusing on growth through their own operating profits.
At the same time though if a business is doing $3m profit a year between two people earning $1.5m a year each, calling it "Bootstrapped" is underplaying its success a little.
Yeah, I also say it with some distaste. This is the path I'm personally pursuing though, and I'd love to have some better terminology to describe it.
I wouldn't call it a "small business" either because, to me at least, that brings to mind a small consultancy and does nothing to communicate the "sell widely but stay small and focused" approach of the intentionally-small digital B2C business. (Mouthful there, huh?)
I usually just refer to my business by what it was (an office design magazine/website) as opposed to defining it by a category of technical jargon because the majority of people I interact with don't want to know.
Some people ask how it makes money (advertising) or if I have raised any money (no) or if I have employees (not yet), but I've never once needed to use the term "lifestyle business" or "small business".
I never went to one, I just follow patio11 tweetstorms whenever he is on it and it is full of gems (the tweets, I can only imagine the conference itself).
They have lots of videos on the website, but a "playbook" format would by an awesome resource!
BTW, I work at "trying-to-be-big-with-outside-investment" startup applying to YC, but I see A LOT of value on the advice of these people when I'm daily executing stuff and not daydreaming how to big a "YC startup"
Microconf is the best conference anywhere. Other options if you enjoy that one: Baconbiz and DCBKK (less software focused but much of the content and crowd generalizes).
To the extent bootstrapped SaaS has a playbook, it is Start Small, Stay Small. I'd probably write one eventually but Starfighter is cutting into my writing bandwidth at present.
Hold the phone. You're hoping to write the bootstrapped SaaS playbook? I know it'd be wrong (and futile) of me to ask you to put off Starfighter to write it, but I'll drop my email (again) into whatever form you'd put up to get an idea of public interest in such a work.
Thanks for indication of interest; many things to get done before I can take on a new project. (Selling AR, getting Starfighter started, and delivering a conversion optimization course first off.)
Along similar lines, it would also be nice to have resources for one (or max two) person businesses, with 100-300K revenue per year (clicky was two man team making 500K/year). That is more than enough to live well and spend some time pursuing interests (not for money).
> They are often bootstrapped, frequently for lack of other options.
The key thing that people don't understand is that investors only make money if you're trying to "revolutionize unicorns." In other words, so many company fails, that in order for your fund to have positive returns, you need to have an investment return 10,000x. Otherwise, you're losing money.
Companies that don't intend to become massive business are fine; but they are not candidates for venture funding. It's not about being un-sexy, it's that the economics just don't work for venture funding. It's not enough to return the investment. It's not enough to 10x. It's not even enough to 100x.
The vast majority of businesses are not going to fit any of this playbook. The problem is this playbook covers a niche. If you don't want to play that niche game, that's totally fine. However, like me, you will have to look elsewhere to decide what game you DO want to play, and what rules you'll have to live by. Sometimes that's customer focus, sometime's that is volume focus, or diversifying, or a 12 month profitability plan (sometimes longer, like maybe a restaurant).
There's no rules in business but the laws of the land. Pretending that there's one definition of success is very limiting to both focus and opportunity for all of us.
For smaller business, my rule is that you need to be great at one of these things and other things do not matter so much.
Do not try to do everything: like have a "great idea", "great team", "great product", "great execution", etc. Think as company as product: if you try to make everything "great" then everything will be actually "half-ass".
If you are great at two or more things: you are unicorn.
For example, if you are great at customer acquisition / SEO then you can just make something very very simple and ask people for money. No need to have "great product" at all.
I would recommend the book Small Giants by Bo Burlingham where the stories of 1 person companies to few hundred people companies are told and these companies have been around for many many years. They did not attempt to be not unicorns and are content
I have a really hard time buying a lot of this about how novelty and monopoly are keys to a successful company. If you look at the really successful startups, especially unicorns, almost none of them are actually monopolies or new ideas. The vast, vast majority are old products done right, and almost all of them have very substantial competition. This attitude is, in fact, encompassed in the near footnote-like section entitled "Competition." That section sums it all up: success is determined with obsessively improving the company. Competition isn't what kills, it is failure to keep on improving.
There is the list of current Unicorns. I can't think of one of them that doesn't have very, very substantial competition or is a genuinely novel product. All of them ventured into highly competitive, well-worn fields and what set them apart was quality of service, ease of use, and responsivity. Very few of them made conceptual leaps in the underlying product - they mostly made leaps in lowering activity energy to use products or solving associated logistical problems.
Sorry Sam, I have to politely disagree with you on this one. Lord knows you are the one with the resume and authority on this, but I am a startup lawyer and work with clients on this stuff all day, so I am not totally unqualified. I do defer to your judgment, obviously, on companies that you want to fund, and your track record more than speaks for itself. However, what I want to know is if there isn't some disconnect between the companies you do fund and the attitude that is expressed in this post. I would love to hear your insights or opinions on whether you feel that I have this wrong, and if you think that the next generation of unicorns are going to be novel monopolies, or that maybe I am misreading the characteristics of current successful startups.
Novel does not mean no competition--there's always competition, even for breakthrough technologies. Even the telephone had to compete with telegraphs or snail mail. The novelty comes in the way an existing need is met. From your list, Uber competes against taxis to transport people short distances. Airbnb competes against hotels to provide short term housing to travelers. Dropbox competed against flash drive to transfer data between machines. These companies have a novel approach to enter and thrive in a competitive market.
A monopoly simply has to have significant influence on supply of a good. In the UK that can be as low as a 30% market share. Qualify a market enough and any company can be a monopoly (I'm sure there's some geography where Lyft or good ol taxis represent a monopoly), so it's important to determine the size and importance of a market (a monopoly over food in a small town is still problematic). So while I cannot say these companies are monopolies--we have the Department of Justice for that--many companies on your list would make a compelling case, were they to abuse their market power.
You make a fair point, and I also do appreciate the definition used by Sam in his post, which was (the site is now down) about network effects compounding the bigger you get, and creative a positive feedback loop. I buy that definition, sure, and I get your comment. However, what I take issue with is funneling tons of smart minds into a quest for green-field or blue-ocean opportunities. There are tons of huge opportunities in existing businesses. I guess I don't understand how we got from "disruption" to "find a business with no competition."
My thoughts on why is pure conjecture but I'll add that there are many such common misunderstandings. Chasing growth is another, which is why I'm very happy for this Startup Playbook. So many people do do not realize growth is STEP TWO AND YOU CANNOT SKIP STEP ONE:
"Your goal as a startup is to make something users love. If you do that, then you have to figure out how to get a lot more users. But this first part is critical—think about the really successful companies of today. They all started with a product that their early users loved so much they told other people about it. If you fail to do this, you will fail. If you deceive yourself and think your users love your product when they don’t, you will still fail.
The startup graveyard is littered with people who thought they could skip this step."
This is a small nitpick, but I'd say Dropbox competes against sysadmins setting up a corporate network share or FTP server (or even email attachments) for storing documents. They basically automated the sysadmin's job, with a slick interface that was easy to set up and easy to pay for.
Same with Slack. They took the concept of IRC, which many companies use internally, and made it dead simple to set up and use.
In essence, I'd say the competition arising these days is all about UX design. Startups are taking these existing services and making them easier and smoother to use.
Dropbox started out as a consumer company, not enterprise. When they launched, most of their customers were individual people not affiliated with a company.
>A monopoly simply has to have significant influence on supply of a good. In the UK that can be as low as a 30% market share.
A monopoly has economic control of the supply of a good or service, no competition and hence pricing power.
Having "significant market share" and zero pricing power in an intensely competitive market is not a monopoly, regardless of how SV has decided to co-opt the word.
look at Microsoft and apple both of their real winners were after the fact. Office and the ipod/iphone. Also, I think anything that makes money is a win. Not just unicorns. If YC wants export to the rest of the country it needs to shoot for more base hits. I think in SV people have already self selected to follow cray ideas. but the rest of the country if you want to get the best candidate show them something with the best odds of not failing.
Office was not the first word processor, Mac OS was inspired almost wholesale from Xerox Parc, the iPod was absolutely not the first mp3 player, and the iPhone was absolutely not the first --iPhone-- edit: smartphone (what a freudian slip!). These are all perfect examples of my point: these were all examples of these products that due to their incrementally better and thoughtful design, which included ease of integration into larger digital ecosystems, compatibility with other products, availability and cost won out in the market. Not a single one of those, however, was a first in kind, nor was it a monopoly. What drove those all to success was the absolute obsession of their developers and designers with making products that were a joy to use and fit seamlessly into larger operating ecosystems.
for office I think it was bundling word processor, spreadhseet etc. and selling it large businesses. why buy one when I can buy 4 for the price of 2. But neither of these companies started out where they ended up.
Most of them have a high friction associated with them. Ditching your benefit provider is a major pain in the ass if you're Zenefits. If you're a paying customer, ditching Dropbox is tough too.
A resource like this is terrific. Would be great to see it in github so you can solicit the occasional outside contribution.
I've always found that even the best teams still need to constantly explore and add new tools in the toolbox in order to execute effectively and achieve success.
(In fact, it's not that even the best teams need to still do this, the best teams actively go out and do this, which likely contributes to them being a high-performing team.)
> Thanks to Paul Buchheit, Erica Carpenter, Brian Chesky, Adam D’Angelo, Drew Houston, Justin Kan, Matt Krisiloff, Aaron Levie, Gabriel Leydon, Jessica Livingston, Dustin Moskovitz, David Rusenko and Colleen Taylor for contributing thoughts to this.
^ this group + @sama... wow. Terrific advice from an amazing list of credible people.
To be honest, I don't think I know a single one of them. Who are they and how can I learn more about what they do and how they formulate such great content?
If I am employed as a developer in a company on a new product, am I then a founder of that product? It just seems like the word founder just keeps being used more liberally as time goes on.
I think it's appropriate in this case. Paul started Gmail inside of Google as a side project. At first most people were not a supporter, including Marissa Mayer and other peers. He was scratching an itch though and eventually got Larry and Sergey on board which helped the cause and eventually grew into what it is today.
So with that, there are a lot of similarities into what we'd call a founder today. While financially there wasn't a big risk, it was still a product he was passionate about and created from nothing.
This is a welcome synthesis of a lot of great info.
It's also a more attractive and credible way to introduce fast-growing technology startups* to the uninitiated than just saying, "oh, just read this bunch of blog posts by this guy called 'pg' who you've never heard of, no, no, trust me, it's reaaally good, he founded YC, which you've also never heard of, but trust me, they're like, the real deal".
*YC-style/SV-type, even if some of the advice is more general, and the definition of 'YC-style' is quickly expanding and loosing meaning.
"We once tried an experiment where we funded a bunch of promising founding teams with no ideas in the hopes they would land on a promising idea after we funded them.
All of them failed."
I was under the impression Reddit fell within this category. I recall a PG quote that went something like "we [Y combinator] hate your idea, but we like you [Alexis and Steve]" in reference to reddit's initial YC funding.
I know Reddit isn't considered a smashing success by VC standards (originally sold for roughly 15-20 MM), but I certainly wouldn't call it a failure.
I had assumed they'd all failed, but don't remember seeing any discussion of it from sama. Was there ever a public post (other than this playbook) that announced the failure of that experiment, and any take-aways beyond the obvious?
>It’s important that you distort reality for others but not yourself.
I would love to see more content and discussion around this. I understand clearly why it is important to pitch who you will be not who you are when recruiting and raising money but when it comes to day to day, doesn't this contradict what you had said earlier about sharing all of the good and bad with your employees? Replacing your water jugs with Kool-Aid at the office just seems evil to me. I'm not sure if that is really what you are saying or not but it seems synonymous with unicorn culture. I see a lot of positives to creating a culture masked with illusion, but in my head, all of the value seems short-term.
Replacing your water jugs with Kool-Aid at the office just seems evil to me.
Founder/VC/moneyhat friendly isn't always employee friendly. Employees exist to be exploited so the founders and VCs become extremely wealthy.
The best way to drive productivity is to convince your employees there's a vague "external enemy" they've gotta beat. Turn it into mental cult gymnastics. Bind their self worth to the success of the company. Grow at all costs.
There are circles of belief though. You should always know the truth yourself (founder), then you decide which lies to tell the board, then which lies to tell your management, then which lies to tell your employees, then which lies to tell the media/public/world. (where "lies" also equals "putting a spin on the truth" or selectively withholding information (hiding faults in the hopes of improving them before failing completely, etc).)
Okay, I've been researching and reaching out to various entities for, well, going on a couple years now regarding my "start-up" concept of a company that creates some inventions, brings to market, and licenses technology as another revenue stream. Yes, it's not a software-oriented business, but it's a viable entity with multiple prospects. Thus, the following line doesn't really ring true to me:
>One important counterintuitive reason for this is that it’s easier to do something new and hard than something derivative and easy. People will want to help you and join you if it’s the former; they will not if it’s the latter.
In every single instance where I actually get a response, there's a consistent chorus of "this doesn't fit the model of what we support" and, basically, I chalk it up to an investment environment that actually, truly targets the derivative and easy moreso than the unique and difficult.
That's why I'm still slogging along in the self-directed patent process. Nobody is interested in helping (beyond some constructive comments I've received here from community members - thank you!), and certainly not in contributing financial backing. It is what it is...but that claim? I don't really buy it.
I think the point is that if the problem is interesting you can get people onboard helping you as ex. tech founders.
But if your problem is trivial (build a en ecommerce website) then they want you to pay them hard cash.
I agree though that some problems might be hard to articulate and so you end up with having a problem getting people to believe in your project.
I personally was trying to convince developers to join me on a venture I wanted to do and had no luck. Then I decided to just pay someone to do a small fraction of what I wanted to do and which I knew I could pay for and now that developer I paid to do my first project is now partnering with me in my next project.
Sometimes you have to look at your idea and see if you can create a much smaller product from what you want so you can get started on someting at least. Then if it's successful you will have people wanting to join you.
Thanks for your response and reasoning as to the circumstance, I follow what you're pointing out. Your last line, about getting started, is the reality I've decided to deal with - enough with dreaming of getting a jump start from anybody else. A co-worker of mine obtained a device patent and has been very encouraging that I pursue the same route - if the idea is to be as successful as intuition and market review indicate, then might as well reap all the rewards first and foremost.
I guess I'm just rather frustrated at the "start up culture" of claiming to invest in new things, in risk-to-reward principles, while in practice it's a lot more akin to the RIAA big-label approach of "we'll give you money only because we know you'll make us more money in this proven areana of pop/country/rap/etc" in a lot of respects.
This might sound harsh, but nothing you've said has indicated to me that you idea is actually one of those new and hard startups. Developing foo technology with a business model of licensing it is pretty derivative. The hard problems are in bringing technology products to market.
Well that's a fair point, but the 'new and hard' component of one or more devices that exist in the physical realm is - by all accounts told to me - harder than deploying some kind of software. Many more challenges in development, cost analysis, manufacturing, and obtaining market share combine to inherently be more difficult than some SaaS product. Or, in other words, developing a concpet like Slack is a cake-walk of difficultly compared to making a wearable device or something like a Segway.
>The hard problems are in bringing technology products to market.
That's exactly my point - investors and the start-up community isn't interested in actual hard problems. It's more infatuated with SaaS or wearable devices, rather than actual products/inventions which have a traditional path of inception-growth-profit. Basically you've backed into making my point in a way.
Seems like a lot of the pushback on this is about whether in releasing this playbook @sama and YC are (i) making a value judgment on unicorn startups vs other businesses, and (ii) serving their own agenda. Personally I don't understand either of these positions.
On (i) it's like attacking someone for releasing a book of muffin recipes by saying "you think muffins are the best food in the world! I only bake cookies -- do you think you're better than me?!". In fact they just like muffins, they have a lot of experience in baking muffins, and instead of keeping their recipes secret they want to help other people bake the best muffins in the world.
On (ii), again my personal reaction, I don't care if it's self-serving. It also happens to be very helpful to me.
Small businesses, large businesses, "lifestyle" businesses, unicorns -- they all take a lot of effort, not to speak of other life commitments. In fact there is a maximum amount of time they can take (24 hours minus a few hours for sleep per day) and depending on your personality you will likely dedicate more or less of this time regardless of the scale of the venture.
I don't think whether it's a $10m business or $100m business or more is a choice based on personal preference, it's based on the nature of the idea you find yourself compelled to pursue.
For example, I used to be an antitrust lawyer. I was often in the office until 5am, and that was as an employee. I worked HARD. I thought I wanted to work less so I quit my job to start a small business. But it turns out that the idea that I have been excited about for the last few years is not a small business, it could never be one even if I wanted it to be. It's the kind of idea that will either be huge or it will be nothing. When you are standing on the brink of that kind of endeavour a few helpful words, a playbook if you will, from someone who knows how it's done can be very helpful indeed.
Entrepreneurs need to be very careful when developing self-belief in their idea. As Sam points out, the people telling you that you are crazy "may be right." I've started angel investing, and it really pains me to see people who have quit their job and devoted years of their life to a business that (in my opinion) has no chance of succeeding. Yes, I may well be wrong about some of them, but the entrepreneur needs to be able to articulate why they think everyone else is wrong.
Self-belief in a crazy idea is not enough. Obviously Sam wouldn't disagree with this sentiment, but many entrepreneurs seem to omit the step of proving to themselves that their idea is not crazy, or they suffer from confirmation bias.
"One important counterintuitive reason for this is that it’s easier to do something new and hard than something derivative and easy. People will want to help you and join you if it’s the former; they will not if it’s the latter." So Google didn't invent the Internet Search it was a derivative but not easy. Facebook didn't invent the SocialNetwork and actually made it easier than e.g. MySpace. Amazon was not the first online retailer but made it better, more reliable. WhatsApp? we knew how to send textmessages for a while but well they made it more convient. So a good idea must not be something unique new but something which makes the product better than the rest.
Basically they're saying: "To succeed you need to have an awesome idea that hasn't been done before. You need a great team and build a great product your users will love".
Wow, thanks for the advice, why didn't I think of that.
Small and simple doesn't have to mean janky and shitty. You reduce scope, not reduce quality.
To carry on with your two examples, I'll make up a security product and a product related to control code for rocket thrusters.
For the security product, let's do a "secure storage on Dropbox" product. Version 1, you do as much as you can with with existing libraries and pieces. Use OpenSSL to handle the crypto bits. The UI has two options: the passphrase for the encrypted storage, and the path to the encrypted directory (and a system tray icon).
Right away, I can think of all kinds of features that would be cool to add to this product, but DON'T build them out for V1. Eventually, you can add PKI so that you can have different keys on different devices and selectively revoke them. And build out the mobile app so that you can access your encrypted stuff on the go. And bake in crypto libraries so that you're not just calling out to openssl.exe. Etc etc. That's V2, V3, V4...
For rocket thruster control code... You're going to need a way to test it. Start with a thruster simulator. You're going to probably need a FEA model and a numeric solver. It's not going to be "simple" as in "I banged it out in a week", but it's way less scope than building and testing thruster control code. Once you've got the simulator built out and working reliably, start selling the simulator while you build out your own control code.
Hell, if you want to keep it super simple, start out by only simulating solid fuel model rocket engines. You can use that to bootstrap the verification process (compare simulation results against measured results for a couple bucks/launch)
This has been the single most useful article Ive read all year. There is much to be said about setting up an unknowing amount of companies with the lessons needed to essentially, NOT MESS THIS UP. Thanks for this
I don't suppose I could make a small request - could we have a print stylesheet that does page breaks on the headers? I'd love to be able to print it out and go through it :)
If this is something that is expected to be around for awhile I recommend talking to an editor. Friends are good to check for overall content and typos, but they are too familiar with the subject to check how well you convey something and too nice to really tear through the text objectively.
He said that he would fix typos and add some stuff, not anything that will make the text itself necessarily better. His writing just isn't that good for something that will be handed out to a lot of people and were there a very real purpose of them understanding it. But as most thing coming out of YC I guess it's more marketing material for the people who buy into a lot of the SV stuff. Maybe he should talk less about "things" and more about ethics, seems like that is something YC companies have become known to fail at recently.
Nice essay. IMHO the contents are (1)
Common, good advice. (2) Good data from
Sam's excellent experience. (3) Some not
so good advice and attitudes.
Scope:
The essay seems aimed mostly at current
Silicon Valley (SV) style, mostly
consumer, information technology startups.
Okay, but that's not all of business or
even all of startups. Yes, YC is pursuing
much more, e.g., some shoe company in
Pakistan, still, the essay is SV style
and there, mostly Web and mobile. Fine
with me, because that's what I'm doing, be
we should understand this point about
scope. And, as below, we should
understand this scope and style because
IMHO it's time for SV style of consumer
Internet to borrow from some of the rest
of technology and business.
Broad Point:
As we all can see, all heard from Mark
Andreessen, etc., and see from Sam,
" ... investors’ returns are dominated by
the big successes, ... "
The Exceptional:
So, from this Broad Point, the goal is
something exceptional. From that, we
have to suspect that we won't always be
following the common and ordinary, some
extensive experience and observations from
the past, or even "big successes" from the
past, and, instead, should be willing to
consider some exceptions in order to be
exceptional.
Users' Love:
> "Your goal as a startup is to make something users love."
Yup.
Now, can we, please, have some more
guidance on just how the heck to do that?
And, please, don't ask me to draw from
Snapchat or Homejoy. And I'm concerned
about
"However, these statistics also reveal a
grimmer reality: 93 percent of the 511
companies accepted by Y-Combinator have
failed. Even more alarming, only 3 to 5
percent of the companies that apply to
Y-Combinator are even accepted, meaning
that only one in every 200 companies that
applies to Y.C. eventually succeeds."
And, I'm concerned about the low ROI of
venture capital as in
Instead, for history with some good
examples, there have been many amazing
projects, some astoundingly innovative,
that worked the first time with high
probability, e.g., for a picture:
(1) Find a problem that huge number of
potential users/customers believe or can
come to believe is really important to
have solved. E.g., want, say, 1+ billion
people with Internet access, if only from
a smartphone.
(2) Find a solution that is much better
than anything else and difficult to
duplicate or equal.
(3) Make sure that for the target customers
right away or soon the solution will be
seen as a must have and not just a nice
to have. Want no doubts here; do not
want to have to depend on gossip and fads
from notoriously flighty teenage girls.
One of the best examples would be a single
pill, safe, effective, cheap, to cure any
cancer.
(4) Deliver the product, easy to use at a
very attractive price.
(5) Make sure the revenue covers all
expenses and yields a fantastic margin,
e.g., pre-tax margin 90%.
(6) For that solution, do some good
original research with powerful, valuable
results in the STEM fields.
(7) Offer the solution as a Web site,
i.e., exploit software, Moore's law, and
the Internet.
(8) Be a solo founder until at least $10
million a year in after tax earnings.
Difficulty:
> "A word of warning about choosing to
start a startup: It sucks! One of the most
consistent pieces of feedback we get from
YC founders is it’s harder than they could
have ever imagined, because they didn’t
have a framework for the sort of work and
intensity a startup entails."
There's something wrong here: All across
the US, east to west, north to south,
cross roads to the largest cities,
millions of sole proprietors do startups
and are successful enough to buy houses,
support families, and get the children
through college.
All the larger bodies of water in and
around the US have boats and yachts, and
nearly all the owners are just such
entrepreneurs. Maybe they own 10 fast
food restaurants, are big in asphalt
paving, are a manufacturer's
representative for some great lines, run
five new car dealerships, own and manage
2000 units of rental property, have a
private label line of industrial floor
cleaning supplies in a mid-size Midwestern
state, did a rollup of dry cleaning
stores, are the main beer distributor for
half of a state, are a leader in design
and construction of custom tanks on truck
frames for hauling liquids, etc.
But, a startup that exploits information
technology, software, Moore's law, and the
Internet should have some advantages and
generally be less difficult.
Idea:
> "Remember that at least a thousand people
have every great idea."
Maybe true with SV style, but more
generally, no, and a thousand times no.
Instead, since so many startups fail, we
want some advantages and definitely can
get a lot of advantage from having a
genuinely new idea. People who wrote a
Ph.D. dissertation that was supposed to be
"an original contribution to knowledge
worthy of publication" and "new, correct,
and significant" will quickly appreciate
the importance of a unique idea and a lot
about how to construct such. Here SV
style is seriously lacking and, as above,
needs to borrow from outside.
As in Sam's
> "Remember that at least a thousand people
have every great idea."
I believe that SV style nearly trivializes
the idea and, to raise the success rate,
very much needs to go much deeper into the
idea and associated considerations of user
need, market size, meeting the user need,
and new, proprietary technology to meet
the user need especially well with a
product difficult to duplicate or equal,
and protected intellectual property that
supplies a barrier to entry. In some
places such unique intellectual property
is taken very seriously, with laws,
contracts, national security
classification, etc. For higher success
rates, SV style needs to do better with
such intellectual property.
Several good examples of a such
intellectual property and its power are in
the picture
This is another case of where SV style
needs to borrow from outside.
Team:
Once again, over again, one more time, yet
again, we come to the issue of team.
Again we learn that it's tough to get a
good co-founder; co-founder disputes are a
major cause of startup failure; it's tough
to hire good staff; it's difficult to keep
the staff well involved; being a good
leader and manager and learning to do so
is a lot of work, and BoD members rarely
know much about the details of the
business, likely much less if some new,
unique, powerful, valuable crucial, core
technology is key to the business.
So, with all those clear dangers to the
startup, we begin to conclude: Be a solo
founder, get to earnings ASAP, grow
organically, well into very good
profitability hire no one, and from the
start carefully plan never but never to
accept equity funding or report to a BoD.
Or, follow the example of Markus Frind and
his romantic match making Web site Plenty
of Fish, initially, just one guy, two old
Dell servers, ads just from Google, $10
million a year in revenue, and recently
sold for $575 million in cash.
Understand the Users:
> "... it’s critical you understand your
users ..."
Right. And for making, say, really nice
seat cushions for the driver's seats of
Rolls Dropheads with owners in the Chablis
and Brie set in the Hamptons, sure.
But in consumer Internet, for a big
success, there will millions, maybe
billions of users, and about all that can
be said about those users is that they are
a not very special cross section of
humanity. So, really just have to
understand the pair of the product and the
ordinary man on the street.
Love it. What is missing is some information about technicalities e.g. Want to rise money in US? You probably need a Delaware S-corp (Github repo maybe better for it)
Agreed on the technicalities. The easiest way to capture the 80% of technicalities that prospective founders care most about might be to have FAQ section where YC portfolio companies can weigh in on things like "Wish I knew to [take certain action] [during time period]. Here's a resource I found [link]".
Agreed that there needs to be clarifications around how most international startups are funded (i.e. Delaware Corp takes the funding and holds the non-US entity as sub.)
